Random Notes  

Posted by Big Gav

Another interesting day out there. There is far too much relevant news these days to parse in an evening, but this is my best effort to sample whats out there (and please excuse my increasingly dodgy grammar and spelling - these things don't get proof-read and get assembled very rapidly).

Energy Bulletin has a link to a good little introduction to peak oil and Colin "Dr Doom" Campbell at "Signature". Not much new other than the notes on the "Fuelling the future" conference in Ireland, but I always get a bit of mordant amusement when I see a reference to Jay Hanson pop up in print.

If the SAIC report is correct, we need to spend at least a decade preparing for the end of cheap oil, in order to mitigate its effects; and these programs might take years to build up to full scale.

But if Campbell is correct, we have months, not years.

Campbell's studies, published through the Association for the Study of Peak Oil and Gas (ASPO) project global oil peak in 2007. Conventional oil, the most readily accessible oil, he believes has already peaked, in 2004. Other methods of analysis seem to support Campbell's projection of an imminent peak, most notably UK Petroleum Review editor Chris Skrebowski's Megafields Project, and investment banker Matthew Simmons' investigation into Saudi oil reserves.

It might be said, that by most conventional standards, we are simply fucked. One of the first websites devoted to Peak Oil was Jay Hanson’s DieOff.org and as the name suggests, it anticipates the collapse of industrial civilisation — taking much of the human population with it. Accepting the Peak Oil thesis can produce a kind of survivalist mindset, or a bleak acceptance. Colin Campbell, in his gentle and genial way, stresses that this isn't necessarily a doomsday scenario, but even he takes for granted that the world's population will likely drop dramatically.

So how then, can one explain a conference devoted to Peak Oil, where the mood was positive, and offered a sense of opportunity?

Now most half-awake people are aware of peak oil, Saudi Arabia's oil minister, Ali al-Naimi, has announced a magical doubling of the country's proven reserve base, adding 200 billion barrels to the current estimate of 264 billion (via TOD). Strangely enough this was foreshadowed back around Xmas, although I saw little comment on it at the time, on the same day I saw an article quoting BP's Lord Browne saying we're not running out of oil. You do have to wonder where all this oil suddenly came from and why they only have nasty sour stuff to try and smooth price spikes with. If it were to be true of course, it would mean they probably have more oil than Iraq does.

The shut oil flowstations in Nigeria have reopened (but haven't started pumping again yet) after the government sent more forces to the area.

The Guardian has an article on the IMF pointing out the fragile state of the US economy, which echoes the point Crooked Timber made a few days ago about the German economy being an example to the rest of us - energy efficiency is good.
Two hurricanes in a month, petrol prices at $3 a gallon, a current account deficit of enormous proportions, a housing market that defies gravity: little wonder that the mood in the United States is a little edgy.

The International Monetary Fund made it clear last week that it saw the world's largest economy as an accident waiting to happen. The US could not continue to live beyond its means indefinitely, and there were only two ways to deal with the unsustainable imbalances in the global economy: the nice way or the nasty way.


Underlying the policy recommendations of just about every global analyst is the belief that the rest of the world needs to emulate the economic model of the US. The calls for structural reform in Japan and Europe stem from the belief that the Americans and the other "Anglo-Saxon" economies have the sort of flexibility that breeds success. Yet that hardly squares with the IMF's notion that the US economy could be going down the pan at any moment. As Mark Weisbrot of the Centre for Economic and Policy Research, a Washington-based thinktank, points out, nor does it square with the long-term needs of sustainability. Europe's energy consumption per head is half that of the US: Weisbrot says the idea that the Europeans should work longer so that they can buy more things is dangerous and he's right.

Perhaps the Germans were a lot smarter than they've been given credit for in their scepticism about the need for neo-liberal structural reform.

PeakOil.com has an interesting article on "Oil Currency Geopolitics" that looks at the possible rise of the petroeuro (and fall of the petrodollar).
Contemporary warfare has traditionally involved underlying conflicts regarding economics and resources. Today these intertwined conflicts involve not only control over oil supplies, but also international currencies. Current events appear to be revolving around the complex nexus of the imminent peak in global oil production, and the erosion of the U.S. dollar as the World’s International Reserve currency. International fissures between the U.S. and the European Union., Russia, and China became visible during 2002-2003, resulting in the failure of the Bush administration to gain U.N. authorization for the impending invasion of Iraq.

Indeed, current geopolitical tensions between the United States and Iran extend beyond the publicly stated concerns regarding Iran’s nuclear intentions, and likely include a proposed Iranian “petroeuro” system for oil trade. Similar to the Iraq war, prospective military operations against Iran relate to the macroeconomics of ‘petrodollar recycling’ and the unpublicized but real challenge to U.S. dollar supremacy from the euro as an alternative oil transaction currency.

Understanding these underlying issues of global oil production and oil transaction currency is critical if one wishes to understand recent events in Iraq — and current U.S. antagonism towards Iran. Although completely censored by the five U.S. media conglomerates, in mid-2003 Iran broke from traditional and began accepting euros as payment for it oil exports from its E.U. and Asian customers.

Once the petrodollar recycling system begins to erode via the emergence of a broad-based petroeuro transaction exchange, the Federal Reserve will no longer be able to effortlessly expand its debt-financing via issuance of Treasury bills, and the dollar’s international demand/liquidity value will begin to fall. This will ultimately force the U.S. to significantly change its current tax, debt, trade, and energy policies, all of which are severely unbalanced.

Saddam Hussein attempted a similar bold step back in 2000, and it remains a quasi-state secret within American society that the major U.S. petroleum conglomerates continued to purchase about 65% of Iraqi’s oil exports from 2001 to early 2003 – but with euros – not dollars. As I hypothesized in 2002, this was unacceptable, and Saddam’s decision was ultimately met with a devastating reaction from the U.S. government via a “shock and awe” campaign. Upon toppling Iraq, the Bush administration immediately dismantled the Oil-For-Food program and quietly re-converted Iraq’s oil transaction currency back to the U.S. dollar – which had the rather adverse effect of wiping out 13% of Iraq’s oil export profits due to the euro’s higher valuation to the dollar in mid-2003. While Iraq was given no choice about using U.S. dollars for its oil sales, Iran is about to commit a far greater “offense” than Iraq’s switch to euros.

There is a report on Rigzone saying that long time peak oil finance commentator Jim Puplava has turned a bit bearish on oil prices.
A long-term energy bull with an excellent record has turned cautious.

On 9-17-05, on the Financial Sense News Hour, during Dr. Duarte's weekly interview, host Jim Puplava, a long term bull on the oil market and a proponent of the Peak Oil theory, who has been right on the money for the entire energy bull market, told me, on the air, that he was starting to have concerns about the state of affairs in the energy sector, and that he was considering starting to lighten up on his energy holdings.

Aside from the technical divergences that are clearly visible, where crude prices are slipping, while oil, oil service, and natural gas stocks are all making new highs, Jim has been hearing lots of happy talk from hedge fund managers, and has noticed, based on what they're telling him, that huge amounts of "hot money" is working its way into the oil markets.


Traditional technical analysis suggests that the price action in commodity stocks, such as those that make up the XOI, are usually a predictor of what's coming in the commodity itself. If that's true, then we could be in for a very dramatic rise in oil prices.

There is another side to the story, though, the economy itself, and the increasing evidence that high oil prices have finally made a dent in consumer spending habits, as gasoline prices rose above $3 per gallon.

Recent consumer confidence numbers, as well as regional reports from Federal Reserve banks have showed a mixed set of data of late, while the housing market, long the engine of the U.S. economy is also starting signs of weakness.

Around the world, the rise in oil prices has also taken its toll. The Indonesian economy is in deep trouble, due to a rapid rise in interest rates as the government defends it currency, the rupiah, from capital flight due to rising budget deficits which in turn have resulted from government subsidies of high oil prices.

In South America, high oil prices are starting to bite, with daily protests, and social disorder now the norm, rather than the exception, in countries such as Bolivia, and Honduras, where high poverty rates have been magnified by rising energy costs.

The ALP seems to have firmly buried the Hawke / Abbott proposal to turn Australia into the world's nuclear waste dump.
"That does not represent Labor Party policy," was the curt response of the Opposition Leader, Kim Beazley. The party's environment spokesman, Anthony Albanese, said: "It's an absurd proposition going nowhere."

Some rare political support for the idea came from the Federal Health Minister, Tony Abbott, who described it as "visionary" and said Mr Hawke should go to work on persuading Labor.

The Herald's excellent finance writer Ross Gittins has a good article on why the industrialisation of China and India will keep pushing energy prices higher. He doesn't even address peak oil directly but points out that even if we could keep producing at current levels over the next couple of decades, the amount of energy available to the average western consumer is going to shrink (oil depletion obviously makes this far more problematic).
If you're upset by the high petrol prices of recent days, you ain't seen nothin' yet. Prices are set to stay high and go a lot higher in the coming years - with regular spikes as hurricanes and other supply disruptions come and go. Just how high prices will rise is anyone's guess.

Petrol prices are just a symptom of something much bigger: the arrival of the industrial revolution - the same one that began in Europe in the early 1800s - in Asia. When countries go down the path of rapid industrialisation, they chew up huge quantities of natural resources and energy. At first this is about building transport, power and other infrastructure, factories and offices. Before long it's also about supplying the appliances, cars and better housing demanded by increasingly affluent consumers.

Our own federal Treasury has been making projections on the assumption that China's industrialisation will continue to the point where its population's material standard of living has reached 70 per cent of developed-country living standards by 2050.

Do you see what this means? The world's rich countries - accounting for just 15 per cent of global population - have long been consuming a vastly disproportionate share of the world's energy and other natural resources. But now about 40 per cent of the world's population is in the process of changing their status from poor to rich and, in the process, hugely increasing their per-head consumption of energy and resources.

When you think about all the use of non-renewable resources, all the pollution, all the waste matter, all the greenhouse gas emissions this will entail, you have to wonder how the globe's natural environment will stand the strain.

Is it physically possible for 55 per cent of the world's population to enjoy the present Western standard of living ? But before you get your brain around that mind-boggler, you're faced by a more prosaic realisation: we - the rich people of the world - are going to have to share the world's limited resources with a higher proportion of the world's population.

It's worth noting that, unlike most rich countries, Australia stands to be a beneficiary from this process. Sure, our motorists and road transport industry will suffer along with those in other countries. But Australia happens to be a major exporter of minerals and energy. We may be a net importer of oil, but we're a big and growing exporter of natural gas and a huge exporter of coal.

Remember that the reason the Federal Government's coffers are overflowing at present isn't a windfall gain from the various taxes on petrol - that's largely a delusion - but the huge company tax collections from our booming mining companies.

Even so, the future looks far from golden for our motorists. What should we be doing to ease the pain of rising petrol prices? Well, this is where the economic rationalists have it right: we should let the market price of petrol (including the taxes built into it) go where it will.

If only more Australians had a better grasp on the laws of supply and demand, they'd understand the paradox that the rising price of petrol (and, of course, oil) offers the best prospect of preventing, delaying or limiting further price rises.

The signal to buyers is: at this price, petrol is hugely expensive, so find ways to economise in its use and search for cheaper substitutes. Already we're seeing signs that motorists are responding to this "price signal". Sales of new small cars are up, while sales of gas-guzzling four-wheel-drives are down. Passenger numbers on Sydney buses are up. Sales of petrol are down.

Once governments accept that the upward pressure on petrol prices is long-term, there's much they could be doing to switch from building more expressways to improving public transport, and to shift long-distance freight from road to rail by straightening rail tracks and charging trucks the true cost of the road damage they do.

Elsewhere in the Herald there is a report on damage to rigs in the gulf belonging to Australian companies (BHP's ironically named "Typhoon" being the major casualty - the Houston Chronicle has an article on the industry standards that rigs comply to - apparently the "hundred year Category 5" hurricane that they are meant to withstand is more like a strong "Category 2"), a piece on the corruption involved in handing out post-Katrina reconstruction contracts, a report that our esteemed and venerated Prime Rodent is "encouraging" oil companies to include ethanol in fuel, an article by Alan Kohler on the possible impact of oil prices on the already weak (but grossly overpriced) Sydney housing market, and lastly there is a report that protests are about to start in Indonesia to oppose reductions in fuel subsidies.

The FT is reporting that Rita has caused a record amount of damage to rigs, so BHP isn't suffering alone.
Hurricane Rita has caused more damage to oil rigs than any other storm in history and will force companies to delay drilling for oil in the US and as far away as the Middle East, initial damage assessments show.

ODS-Petrodata, which provides market intelligence to the offshore oil and natural gas industry, said it expected a shortage of rigs in the US Gulf this year. “Based on what we have right now, it appears that drilling contractors and rig owners took a big hit from Rita,” said Tom Marsh of ODS-Petrodata. “The path Katrina took was through the mature areas of the US Gulf where there are mainly oil [production] platforms. Rita came to the west where there is a lot of [exploratory] rig activity.”

Ken Sill of Credit Suisse First Boston said: “Early reports indicate numerous rigs are missing, destroyed or have suffered serious damage and several companies have yet to report. Rita may set an all-time record.”

Earlier in the day, Ali Naimi, Saudi Arabia's oil minister, said the market had not taken up the 2m barrels a day of spare capacity the Organisation of the Petroleum Exporting Countries offered last week. Speaking in Johannesburg, he blamed high oil prices on a lack of industry infrastructure, including rigs and refineries, rather than oil reserves. Rigs, which are movable and are used for exploration and development, were in short supply before hurricanes Katrina and Rita blew through the US Gulf in late August and September.

High oil prices and the desperate search for new oil supplies needed to meet rampant demand from the US and China have made rigs difficult to find and expensive to hire. Rigs cost $90m-$550m to construct, depending on how sophisticated the structure and how deep the water in which it will drill. A rig ordered today is unlikely to be ready before 2008 or 2009, analysts said.

On a related note, Tech Review has an interview with the NOAA's Sandy MacDonald on predicting the paths of hurricanes. Paranoid readers will be disappointed that there is no mention of keeping an eye on HAARP usage (I only throw this in as an aside so I can note that the "weather wars" branch of the conspiracy theory world has been rather excitable lately, with one TV weather forecaster even throwing in his job last week to make his hobby of exposing the "Japanese Yakuza manipulation of US weather" a full time occupation. The report I read said that the TV station, and his family, wished him the best in his new endeavour).

Moving onto a subject that once was the domain of Alex Jones' own unique branch of conspiracy theorising (I think people could be excused for wondering if what 5 years ago was simply entertainment for the extremely paranoid may be regarded as a documentary in a few years time) but now has unfortunately become part of everyday news, the SMH has a scathing piece on the new detention without charge laws.

There is a good article in The Guardian that shows what is likely to become commonplace - an innocent person arrested in London for looking like a computer geek (via Bruce Schneier)

Letter writers to the SMH continue to be displeased with our brave new world (and they aren't too happy with the nuclear debate either).
Has anyone noticed that this crazy bidding war over anti-terrorism laws ("PM resists use-by date on terrorism powers", Herald, September 27) is more and more resembling a Monty Python sketch? It starts relatively normal and sane and then gets progressively more absurd.

Is the terrorism threat so dire that we need to sign away our civil rights this way? Are the laws really going to help much anyway? There is far more danger to everyone from traffic accidents or heart disease or cancer. In the meantime, real and large-scale threats, such as global warming and bird flu, hardly raise a ripple.

Robert Howard Vaucluse


Most people agree, albeit reluctantly, that the police need more powers than normal to combat terrorism. However, it is necessary more than ever that these powers be given only to the police, not the faceless fools in the secret service or intelligence agencies. And people detained must be presented to a court of law, even if they have yet to be charged.

There is much reference to slippery slopes these days and the position presented to us in the name of safety is surely at the edge of the steepest, most slippery slope of all. May we tread wisely and carefully.

E.E. Cook Ainslie (ACT)


When Robert Menzies attempted to ban the Communist Party, Labor, under the flawed Doc Evatt, stood up to be counted. Instead of meekly following, Evatt launched a principled campaign, and in the subsequent referendum, Australians supported democratic freedom over scaremongering.

The sight of Labor premiers trooping to Canberra to inevitably support John Howard's continued dismantling of our fundamental tenets of democracy is pitiful. Howard has Labor spooked in a way that even Menzies could only dream about.

Mark Latham is right on one thing: Labor stands for nothing.

Greg Loder Springwood


New laws? Proof positive the terrorists have won.

Paul Hopmeier Lane Cove


Peak Oil Issues

Keep in mind one major thing about Peak Oil - product substitution and fuel blending.

As refined product price rises past a critical point, refiners and end users can and will substitute blended, for example, synfuels, biodiesels, and ethanol, substitutes into their fuel mix.

e.g. instead of just blending ethanol for the emissions benefit, we will blend it for cost in selected markets as the economics slowly dictate.

This will have the result of allowing the market to ease the transition through the Peak Oil problem, no matter when it occurs. Crude oil shortages are not an all or nothing issue. Fuel blending substitution will provide a safety valve.

Neal Dikeman

Yes - you are correct that all these will be needed to adjust to oil depletion.

If depletion was the only issue I'm sure the combination of ethanol, biodiesel, synfuels (tar sands, shale oil and coal to liquids) and some efficiency improvements to transport would largely make the adjustment tolerable.

The problem is that as Chinese and Indian demand grows, combined with the impact of depletion, the transition is unlikely to be quite so smooth - the substitutes don't appear to be able to scale up fast enough to close the gap (but I'd be happy to see some detailed analysis showing this isn't the case).

So more radical adjustments are likely to be required (preferably ones which don't involve some sort of military attempt to throttle off access to middle east and central asian energy to asia).

Like your blog BTW.

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